Fine Chemicals Firms Find Generics Niche

Western suppliers of active pharmaceutical ingredients (APIs) have no generic strategy for generic drugs. Many firms offer a menu of standard generics, generating a steady cash flow to offset the vagaries of their more lucrative but riskier exclusive synthesis ventures. Others avoid generics, viewing them as a source of constant price wars with Indian and Chinese suppliers. Still others have amassed a portfolio of higher-value generic APIs, often referred to as niche generics.

Priced at a premium and sometimes offered via exclusive contract to drug and biopharmaceutical companies, niche generics have much in common with exclusively synthesized, patented APIs. Although they are not protected by patents and in principle can be manufactured by anyone, many niche generics require innovative chemistry of the sort that may elude Asian competitors.

Several API producers in the U.S. and Europe say niche generics have increased in importance in recent years, given the drop in exclusive synthesis business following the financial meltdown of 2008. But taking advantage of opportunities in niche generics requires companies to embrace process development and regulatory approval challenges that dissuade newcomers from jumping into the fray.

Industry watchers shrug at the notion that niche generics are a cure for what ails the pharmaceutical chemicals industry. “This year has seen a bumper crop with drugs coming off patent,” says Jan Ramakers, director of the fine chemicals consulting firm that bears his name. But most of the new generics, he adds, are “blockbusters” that will attract many API producers and be sold for rock-bottom prices. When it comes to niche generics, “it’s a lot more difficult to track what is happening,” he says. “They are often so small that they disappear under the radar.”

James R. Bruno, president of the consulting firm Chemical & Pharmaceutical Solutions, agrees. “There is this perception that niche generics will be great products,” he says. “But there are a lot of companies making smaller volume products.”

Given the technology requirements and the need for long-term relationships with customers, Bruno says, new opportunities will likely present themselves to companies already in the business. “I get calls every day from people saying they want to get into [niche generics] for oncology,” he says. “I tell them they may have already missed the boat.”

Indeed, API manufacturers active in niche generics say their success is the result of shifting idle capacity over to the production of new generics plus the years of small-scale contracts with pharmaceutical customers testing the generics waters.

“It’s a tough business,” says Steven M. Klosk, chief executive officer of Cambrex, a New Jersey-based pharmaceutical chemicals maker. “You need to develop products far ahead of patent expiry. You have to spend time, effort, and dollars before you see a reward.”

Cambrex, where generic API production is focused entirely on niche products, maintains between 15 and 20 molecules in development and tries to launch several new commercial products annually. “We don’t have a target in that regard, but we want continuous annual launches,” Klosk says.

PCAS, a fine chemicals company based near Paris, does have a generics launch target: two per year. And it already has met its 2012 goal. The company recently announced that it will supply the API foscarnet for Clinigen’s Foscavir, an injectable treatment for HIV/AIDS, and mifepristone, the API for Corcept Therapeutics’ Korlym, a therapy for endogenous Cushing’s syndrome.

“We are good for 2012!” beams Vincent Touraille, the French firm’s CEO. He notes, however, that the company has long-standing relationships with both Clinigen and Corcept, as well as with AstraZeneca, from which Clinigen acquired Foscavir in 2010. PCAS currently has about 40 niche generics in its portfolio, Touraille says, and has phased out all other generics work. The company sees the most value in working with innovator companies that are repurposing generic drugs for new therapeutic targets.

“Many times, especially in the U.S. where people are more innovative, they are making a new dynamic form and launching the generic as a sort of new product,” Touraille says. PCAS aims to land supply agreements with these firms at the development stage, he says. “In that case, you can develop a strong relationship. In other cases, generic drug companies are just making the same thing the pharma companies make, and it is a war of price.”

PCI Synthesis has also spent years establishing a niche generic API business. The Massachusetts-based company has five products on the market and four more waiting for approval with the Food & Drug Administration. It has a goal of launching three to four APIs per year. “That’s a great strategy, but the regulatory demands are increasing, and they are definitely increasing cost and definitely lengthening the time” for product approval, says President Edward S. Price. “But we developed a pipeline a number of years ago, and we have a bunch of approvals.”

Price credits the approvals for helping carry PCI through the tough years of 2009 and 2010 when many contract manufacturing firms were laying off staff. “If we hadn’t initiated some projects in 2005 and gotten them approved, we would have had to retrench.”

Irix Pharmaceuticals has taken up niche generics more recently, with a focus on prostaglandins and vitamin D chemistry. “We are using our expertise to create new technology or processes for molecules to counteract and balance the efficiencies companies would realize going to India and China,” says Panos Kalaritis, the firm’s chief operating officer. Much of that expertise stems from work he and Irix’ chief science officer, George Yiannikouros, did earlier in their careers at Roche.

Irix, which operates two facilities in South Carolina, markets niche generics via both exclusive and nonexclusive contracts, Kalaritis says. In vitamin D chemistry, the company offers products including calcitriol, calcipotriol, maxacalcitol, paricalcitol, and alphacalcdol. It was able to develop a 26-step process for paricalcitol, achieving commercial-scale production in three months, he says. Yiannikouros holds a patent for the manufacturing process for calcitriol.This process is still used by Roche.

In prostaglandins, Kalar­itis says Irix was late to the generic API market but was able to position itself with an efficient process. “We have a unique penultimate intermediate that is crystalline,” he says. “A majority of products out there have oils [at that step], and the only way to purify them is through chromatography.”

Two years into production, prostaglandins represent 10% of the company’s sales, Kalaritis says. He sees niche generics becoming increasingly important to Irix as a way to counter the whims that bedevil exclusive synthesis.

“The reality is that over the years, we had focused on proprietary products, with 75% of the business coming from new and emerging companies,” he says. “A number of products advanced to late-stage clinical development, some fell out, and some were acquired. But we had limited success in garnering a portfolio of products. As a company you need that base load.”

Brian Scanlan, CEO of Cambridge Major Laboratories, also sees niche generics as an important base-loading business. He wants to expand generics to about 20% of his firm’s sales, up from 15% today. And he sees an opportunity to do this in niche generics.

“We see a subtle shift in pharmaceuticals,” Scanlan says. “Over the last few years, for example, we see more emerging pharma and specialty pharma companies moving toward repurposed drugs that use existing APIs.”

Ramakers, the consultant, says niche generic APIs constitute a “developing story” in that there are many companies that can position themselves to start producing small quantities of pharmaceutical chemicals for specialized markets. “It will be interesting to see how it develops,” Ramakers says.

But companies already involved may be doing more than discouraging competition when they warn new entrants to think twice about entering a field that depends on proprietary technologies and long-term relationships with drug companies. “It’s a rough landscape to say the least,” PCI’s Price says.